UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q -- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-Q
For the period ended July 4, 1999
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Commission file number 1-3940
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National-Standard Company
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(Exact name of registrant as specified in its charter)
Indiana 38-1493458
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1618 Terminal Road, Niles, Michigan 49120
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(Address of principal executive offices) (Zip Code)
(616) 683-8100
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Shares Outstanding at August 9, 1999
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Common Stock, $ .01 par value 5,728,801
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Part I. FINANCIAL INFORMATION
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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($000, Except Per Share Amounts)
<CAPTION>
Three Months Ended Nine Months Ended
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net Sales $ 41,632 $ 55,695 $ 144,255 $ 170,595
Cost of sales 35,989 48,059 125,241 149,538
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Gross profit 5,643 7,636 19,014 21,057
Selling and administrative expenses 2,627 6,539 11,444 18,081
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Operating profit 3,016 1,097 7,570 2,976
Interest expense (744) (971) (2,686) (2,949)
Other income (expense), net (18) 74 (137) 555
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Income before income taxes 2,254 200 4,747 582
Income taxes (106) 1 (177) 50
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Net income $ 2,360 $ 199 $ 4,924 $ 532
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Basic earnings per share $ 0.41 $ 0.04 $ 0.87 $ 0.10
Diluted earnings per share $ 0.40 $ 0.04 $ 0.86 $ 0.10
Dividends per share $ 0.00 $ 0.00 $ 0.00 $ 0.00
Basic average shares outstanding 5,728,801 5,235,395 5,646,258 5,232,509
Diluted average shares outstanding 5,883,415 5,235,395 5,734,045 5,232,509
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
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($000)
<CAPTION>
THREE MONTHS ENDED Nine Months Ended
JULY 4, June 28, July 4, June 28,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net Income $ 2,360 $ 199 $ 4,924 $ 532
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Other comprehensive income (loss):
Foreign currency translation adjustments 42 60 1,050 (195)
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Other comprehensive income (loss) 42 60 1,050 (195)
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Comprehensive income $ 2,402 $ 259 $ 5,974 $ 337
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See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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($000)
<CAPTION>
Assets July 4, 1999 September 30, 1998
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(Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 2,729 $ 251
Receivables, net 18,679 24,272
Inventories:
Raw material $ 7,395 $ 10,054
Work-in process 5,497 6,772
Finished goods 294 13,186 1,140 17,966
Prepaid expenses 2,186 2,347
Deferred tax asset 2,347 1,721
Total current assets $ 39,127 $ 46,557
Property, plant and equipment $ 140,874 $ 172,987
Less accumulated depreciation 95,521 45,353 122,227 50,760
Other assets 18,244 17,761
$ 102,724 $ 115,078
Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable $ 21,110 $ 28,097
Accrued pension 1,062 1,062
Other accrued expenses 7,038 18,484
Current accrued post-retirement benefit cost 2,400 2,400
Notes payable to banks and current portion of
long-term debt 23,894 24,312
Total current liabilities $ 55,504 $ 74,355
Long-term debt 11,050 14,029
Other long-term liabilities 12,764 9,286
Accrued post-retirement benefit cost 49,123 49,859
Stockholders' equity
Common stock - $ .01 par value. Authorized
25,000,000 shares; issued 5,735,740 and
5,470,740 shares, respectively $ 28,171 $ 27,441
Retained deficit (47,762) (52,686)
$ (19,591) $ (25,245)
Less: Unamortized value of restricted stock 71 128
Treasury stock, at cost, 6,939 and 2,669
shares, respectively 47 20
Other comprehensive income:
Foreign currency translation adjustments (118) 932
Excess of additional pension liability over
unrecognized prior service cost 6,126 (25,717) 6,126 (32,451)
$ 102,724 $ 115,078
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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($000)
<CAPTION>
Nine Months Ended
July 4, June 28,
1999 1998
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<S> <C> <C>
Net cash provided by operating activities $ 4,651 $ 13,053
Investing Activities:
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Capital expenditures (4,631) (10,499)
Proceeds from sale of equipment 2,585 219
Proceeds from sale of United Kingdom subsidiary 3,244 0
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Net cash used for investing activities 1,198 (10,280)
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Financing Activities:
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Net borrowings (payments) under revolving credit agreements (192) 2,252
Principal payments under term loans (3,205) (2,493)
Other 26 (26)
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Net cash used for financing activities (3,371) (267)
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Net increase in cash 2,478 2,506
Beginning cash 251 729
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Ending cash $ 2,729 $ 3,235
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Supplemental Disclosures:
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Interest paid $ 2,395 $ 2,975
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Income taxes paid $ 7 $ 54
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See accompanying notes to financial statements.
</TABLE>
<PAGE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of the financial
statements for the interim periods included herein have been made.
The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements in the 1998
National-Standard Company Form 10-K, Annual Report, and this report
should be read in conjunction therewith.
2. The results of operations for the nine-month period ended July 4, 1999
are not necessarily indicative of the results to be expected for the
full year.
3. On October 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components.
4. Certain 1998 amounts in the Consolidated Financial Statements have been
reclassified to conform with 1999 presentation.
<PAGE>
NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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Net sales for the third quarter of 1999 decreased 25.3% over the same period
last year, while net sales for the nine months ended June 1999 decreased 15.5%
over the same period last year. Gross margin percentages were 13.6% and 13.2%,
respectively, for the current three- and nine-month periods compared to 13.7%
and 12.3%, respectively, for the same periods last year.
Sales for the third quarter of fiscal year 1999 were $41.6 million, compared to
$55.7 million for the same period last year, while sales for the nine-month
period ended July 4, 1999 were $144.3 million compared to $170.6 million for the
same period last year. Sales from the Kidderminster, United Kingdom facility in
the current three- and nine-month periods were $6.5 million and $10.6 million
lower than in the prior fiscal year due to the sale of the Kidderminster wire
operation. As previously reported, 100% of the wire operation at Kidderminster
in the United Kingdom was sold on March 12, 1999. The Company currently operates
a leased facility located in Peterlee, United Kingdom that manufactures air bag
inflator housings.
Domestically, sales of air bag inflator filtration products for the three- and
nine-month periods decreased approximately 20.4% and 11.2%, respectively, over
the same periods last year due to lower sales of certain low margin wire cloth
for automotive air bag filtration applications. Additionally, some air bag
related products that were expected to begin production in the third quarter
were delayed until the fourth quarter, ramping up following the automotive
changeovers in the summer. Weld wire sales were down .9% and 5.4% for the
current three- and nine-month periods from last year, as sales from these
operations were adversely affected by the slowdown in the Asian economy and the
depressed agricultural equipment market. Rubber reinforcement products
experienced a 20.5% and 9.5% decrease for the same time period due primarily to
lower selling prices and unscheduled downtime because of weather and equipment
failure.
Net income for the third quarter of fiscal year 1999 was $2.4 million or 40
cents per diluted share versus a net income of $.2 million or 4 cents per
diluted share for the same period last year. The $2.2 million increase in income
over last year's third quarter is partially due to the net positive impact of
the sale of the Kidderminster wire operation and the1998 restructuring in North
American operations, including a $.7 million post-retirement benefit gain
related to the restructuring. During the comparable period last year, the
Kidderminster operation lost $.3 million.
Changes to the Company's retiree health benefits made in 1998 resulted in
unrecognized gains from salaried employees' prior service costs of $3.5 million.
As a result of the restructuring and the corresponding reduction in the North
American workforce, approximately 20% of the unrecognized gain, $.7 million,
will be recognized in the current period. The net result of these health care
benefit changes and workforce reductions is expected to reduce the accumulated
post-retirement benefit obligation for benefits other than pensions by $5.4
million, with a corresponding increase in the unrecognized gain and prior
service cost benefit related to post-retirement benefits other than pensions to
$4.6 million. The unrecognized gain and prior service cost benefit will be
amortized over future periods.
For the first nine months of 1999, net income was $4.9 million or 86 cents per
diluted share versus $.5 million, or 10 cents per diluted share in the same
period last year. Included in net income is $.6 million of loss, the net result
of Kidderminster's $1.2 million loss from operations up to the date of sale and
the gain of $.6 million on the sale of the operation. During the nine-month
period, the Company also incurred $1.0 million of expense for relocating the
Guelph plant's wire manufacturing capacity to other North American facilities.
Without the $1.0 million of nonrecurring cost of equipment moves, the impact of
Kidderminster's $.6 million net loss, and the $.7 million recognized gain on
retiree healthcare, the Company would have reported $5.8 million of net income
in the current nine-month period compared to $.8 million in the comparable
period last year.
<PAGE>
Interest expense of $.7 million and $2.7 million, respectively, in the current
three- and nine-month periods decreased 23.4% and 8.9%, respectively, over the
same periods last year, due to lower levels of borrowing.
Other income of $74 and $555 for the three- and nine-month periods last year was
primarily the gain on disposition of idle assets and foreign exchange gains.
The Company remains in an operating loss carryforward position in the United
States, Canada, and the United Kingdom. Income tax expense on current income was
substantially offset by a portion of these carryforwards, as well as a decrease
in the net deferred tax asset valuation reserve.
LIQUIDITY AND CAPITAL RESOURCES
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Total borrowings decreased $3.4 million during the nine-month period, due
primarily to the proceeds received for the sale of Kidderminster.
The Company's credit facility provides for up to $55.0 million in revolving
credit facilities, term loans and a line of credit for future capital
expenditures. During 1998, the Company renewed its credit facility originally
entered into in 1994 to October 1, 2001. The loans are fully secured by the
Company's assets.
The Company believes adequate funding is in place to fund future growth and meet
the market demand for our products.
In late December of 1998, the Company contributed 255,000 shares of
National-Standard common stock to the National-Standard Pension Master Trust.
The total shares outstanding on July 4, 1999 were 5,728,801. The Pension Master
Trust holds 1,963,175 shares of National-Standard common stock, 34% of the total
shares outstanding.
YEAR 2000
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The Company has undertaken a Year 2000 program to assess and then to resolve any
issues relating to this matter. The Company is currently in the process of
upgrading its business systems to Year 2000 compliant software. The total cost
to the Company of achieving Year 2000 compliance is not expected to exceed $1.2
million and will consist of the utilization of internal and external resources.
Spending to date totals approximately $.7 million. Costs relating to Year 2000
compliance are included in the Information Systems budget. All costs related to
achieving Year 2000 compliance are based on management's best estimates.
However, there can be no guarantee that actual results will not differ from
these estimates.
The Company is in the process of determining the risk it would face in the event
certain aspects of its Year 2000 remediation plan fail. It is also developing
contingency plans for all mission-critical processes. To date, the Company has
identified all applications and hardware with potential issues, performed an
assessment to determine the appropriate action plans to remediate any problems,
and started the process of implementing these plans and testing the
modifications as they are completed. The Company is also assessing potential
third-party risk. Under a "worse case" scenario, the Company's manufacturing
operations would be unable to build and deliver product due to internal system
failures and/or the inability of vendors to deliver raw materials and
components. Alternative suppliers are being identified and inventory levels of
certain key components may be temporarily increased. While virtually all
internal systems can be replaced with manual systems on a temporary basis, the
failure of any mission-critical system will have at least a short-term negative
effect on operations. The failure of national and worldwide banking information
systems or the loss of essential utilities services due to the Year 2000 issue
could result in the inability of many businesses, including the Company, to
conduct business. Risk assessment and contingency planning are in
<PAGE>
process to be completed during the third calendar quarter 1999. All remaining
remediation projects are expected to be completed by the end of the third
calendar quarter 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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There have been no material changes in the Company's market risk during the
three-month period ended July 4, 1999. For additional information, refer to Item
7A in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.
"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
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1995
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Statements under Management's Discussion and Analysis of Financial Condition and
Results of Operations relating to funding of future growth, ability to meet
market demand, the reduction of accumulated post-retirement benefit obligations
for benefits other than pensions, and Year 2000 impact, and the other statements
in this Form 10-Q which are not historical facts, are forward looking
statements. These forward looking statements involve risks and uncertainties
that could render them materially different, including, but not limited to,
changes in economic conditions, the impact of competitive pricing and products,
industry overcapacity, and availability and cost of raw materials. The Company
does not intend to update these forward looking statements.
<PAGE>
Part II. OTHER INFORMATION
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Item 5. Other Information
Shareholders wishing to bring a proposal before the 2000 Annual
Meeting of Shareholders (but not include it in the Company's Proxy
Statement) must cause written notice of the proposal to be received
by the Secretary of the Company at the principal executive offices
in Niles, Michigan by no later than November 28, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) There were no reports on form 8-K filed during the three months
ended July 4, 1999.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL-STANDARD COMPANY
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Registrant
Date August 13, 1999 /s/ M. B. Savitske
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M. B. Savitske
President and Chief Executive Officer
Date August 13, 1999 /s/ W. D. Grafer
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W. D. Grafer
Vice President, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains third quarter summary financial information extracted
from National-Standard Company 1999 third quarter Form 10-Q and is qualified in
its entirety by reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUL-04-1999
<CASH> 2,729
<SECURITIES> 0
<RECEIVABLES> 18,934
<ALLOWANCES> 255
<INVENTORY> 13,186
<CURRENT-ASSETS> 39,127
<PP&E> 140,874
<DEPRECIATION> 95,521
<TOTAL-ASSETS> 102,724
<CURRENT-LIABILITIES> 55,504
<BONDS> 0
0
0
<COMMON> 28,171
<OTHER-SE> (53,888)
<TOTAL-LIABILITY-AND-EQUITY> 102,724
<SALES> 144,255
<TOTAL-REVENUES> 144,255
<CGS> 125,241
<TOTAL-COSTS> 125,241
<OTHER-EXPENSES> 137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,686
<INCOME-PRETAX> 4,747
<INCOME-TAX> (177)
<INCOME-CONTINUING> 4,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,924
<EPS-BASIC> .87
<EPS-DILUTED> .86
</TABLE>
